Rising crude oil prices energise ONGC, Reliance Ind

KS Badri Narayanan Chennai | Updated on October 06, 2021

RIL to transform energy business: Morgan Stanley

Shares of Reliance Industries and Oil and Natural Gas Corporation lifted BSE Energy index to an all-time high on Tuesday, as crude oil prices rose sharply.

Though Coal India, HPCL, IOC, Oil India, Gujarat Gas and BPCL too gained in today’s trade, the limelight was on RIL and ONGC.

ONGC regained ₹2-lakh crore market capitalisation and closed 10.91 per cent higher on the BSE at ₹163.70. Its m-cap stood at ₹2,05,939.17 crore on the BSE.

Crude oil prices at West Texas Intermediate (WTI) rose to $78.52 a barrel and Brent crude went up to $82.31 a barrel amid surging demand and tight supplies.

On the MCX, crude oil surged above ₹5,800 a barrel.

62% hike, a key trigger

According to analysts, apart from firm crude price, the key trigger for the rally was the Government’s recent move to hike the natural gas produced by state-owned firms such as ONGC by 62 per cent to $2.90 per million British thermal unit for the six-month period beginning October 1.

The increase in natural gas prices by the Indian government will boost the profitability of upstream companies such as ONGC and Reliance and support their investment spending, Fitch Ratings said on Tuesday.

Marketing margins on gasoline/diesel remain above long-term averages and are notably higher q-o-q for Q2-FY22, said CLSA in a note. “ONGC remains our top sector Buy, pricing in only about $45/bbl of Brent as we see domestic gas price potentially rising 300 per cent in a year’s time,” it added.

Every 10 per cent increase in domestic gas price has a positive impact of 3–4 per cent on ONGC and Oil India’s valuation, said JM Financial.

RIL price target: ₹2,925

RIL plans to transform its energy business with an over-arching strategy to offer decarbonisation solutions globally at a competitive price in a market potentially worth $5 trillion by 2030, Morgan Stanley said.

“The strategy is to provide supporting infrastructure in areas of hydrogen, integrated solar PV and grid batteries — all areas with high entry barriers, technological advances and good returns,” Morgan Stanley, which retained its 'Overweight' on RIL with a target price of ₹2,925, said.

On Tuesday, Reliance shares closed at ₹2,609.10, up 2 per cent.

RIL’s approach is unique in that it is taking a leaf from European oil majors to become an enablers of electrons, with less focus on producing them, and like US majors, it will focus on synergistic decarbonisation areas (with existing operations), such as carbon capture, hydrogen and even biofuels.”

The plan would make RIL the largest renewable infrastructure producer with the potential to become an alternative technology supplier to the globe, within the current geopolitical setup, similar to how RIL exports high-grade refinery fuels, MS added.

Published on October 05, 2021

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